Vistance Networks, Inc. (VISN) Earnings Call Transcript & Summary

Sure. So clearly, Sprint now has an enviable spectrum position, and they are using that both in the low and the mid-band to build out their 5G plans. So they don't have the same problem what the other 2 incumbent operators have with not really good mid-band spectrum yet. And they're aggressively putting up cell sites, and they're going to be limited as well the other operators by site access, by access to backhaul and to power. And these are all things that we help them with. So we do see that accelerating in terms of spend over the next few years. However, it's always mitigated by how many backhoes do you have on the ground? How many tower climbers do you have? Those sorts of things. In terms of adding another operator, adding DISH, this is an exciting opportunity because it brings us back to 4 operators. And one of the things that always helps CommScope is competition. The more competition there is, the more people need to reinforce and buttress their networks and do creative things. Those are all things that we help with. So having DISH is, we think, is beneficial. They are going through with their network plans at this point. So it's unclear when they will really start building their network for real. But clearly, if you have to build out a nationwide network, you're going to be touching again 60,000 to 100,000 towers, macro towers, plus a plethora of smaller towers, metro cells and various indoor arrangements over the years. And so this represents another opportunity that CommScope would have both for its outdoor or wireless business. It's indoor wireless business, and quite frankly, it's backhaul business as well, whether that's done by a wireless or done by a fiber.

And just while we're on the theme of outdoor wireless. You talked about the FCC recently wrapping up CBRS, the C-band auction slated for later this year. Any sort of estimate in terms of when those airwaves start to get deployed and when they can maybe become more of a contributor to the outdoor wireless business?

Yes. So CBRS auctions, of course, have concluded now, and we've seen some folks being big winners on the auctions. Don't forget 2 things about CBRS. One is you don't have to win the auction to actually put up CBRS cell sites. There are still general availability access, which is 70 megahertz of spectrum which is best available. So it's there most of the time. And so carriers can use that and some may, particularly in more rural areas. The second thing about the CBRS band is that it's -- it has significantly less power than the other bands that are allowed to be transmitted. And what that means is that it's probably -- it needs to be used differently on macro towers than perhaps other frequency bands like C-band would be because of this power disadvantage. It's not going to have as great a range. So there will be deployment in CBRS, and I believe that will be starting sort of fourth quarter, beginning of next year by one of the operators that acquire a lot of licenses. But the real interesting part is when C-Band comes out. And I think C-Band is going to come out in 2 phases. The first phase will allocate, I think, 100 megahertz of spectrum and those auctions should be in December. If they are, in fact, in December, then we can expect sometime next year, zoning approvals will be done toward mid to the second half of next year. For at least that first 100 megahertz, we should start seeing deployment because the first time they'll be able to turn on these systems is the end of next year or thereabouts. The second phase will allow them another 180 megahertz of spectrum. That will happen over the sequential several years. And we may see some build-outs ahead of time. We expect the spectrum to go for huge amounts of money relative to the CBRS spectrum, so probably 10x as much money. So they'll want to put the spectrum into play as quickly as they possibly can. And that spectrum, the C-Band spectrum will be in full power mode. So it is likely to go on most macro towers. So a real opportunity for CommScope and a real opportunity for 5G for the United States.

Let's talk a little bit about broadband networks. I know it's your biggest segment. It's been an area where you've seen increased activity. Can you talk about what you're seeing in the business? And maybe more specifically, what's driving the expectation for I think, pretty robust guidance. You've talked about maybe sequential growth in the third quarter that's in the upper teens. So maybe if you can talk a little bit about what you're seeing there.

Sure. So the broadband segment, it's sort of -- it's almost obvious. We're spending a lot more time at home. We're doing a lot more things. In fact, I am on video calls virtually half the day, maybe more. This being an audio call is unusual nowadays. Video calls require lots of bandwidth, in particular bandwidth in the uplink. So these networks were generally built as downlink networks that were for consumption, consumption of streaming, consumption of data from the Internet, consumption originally of video in broadcast mode. And the networks are straining because although the downlink has increased, the uplink has increased even more and they really weren't provisioned for that type of uplink increase. And so what we have seen a lot is we've seen a lot of node splitting. We've seen additional licenses. We've seen more spectrum being put into play inside of the network to increase the uplink bandwidth. And because people are at home, and because of these newer technologies, like the Zoom meetings or Teams meetings, we're finding so much more consumption on the network that we expect that to continue to grow. In addition, we're seeing fiber going deeper into the network than before, which is aiding our business inside of this segment as well as people prepare these node splits and remove some of the amplifiers in their network and just push the nodes, again, to increase the amount of data, both in the uplink and the downlink. And it's pretty exciting because I think we have quite a run to go on this type of technology, not just in our hybrid fiber coax, but also in our just pure fiber systems. But we have a long way to go in terms of demand. We have more and more applications that make you feel like you're closer to each other, even though you're distinctly apart. And we think even as COVID eventually subsides, that we're going to see people having understood how to better work apart together that we will still use this technology, and it will continue to be a driving force within this business.

Yes. I want to just follow-up on that because we've seen cable spend be lumpy at times. And I know 2019 was impacted by a little bit of a bigger lull. How do you think about the length or duration of the current bump in cable spend? Because I mean, it sounds like there's a lot more room to run. But can you maybe help us frame the longevity of the sort of upward cycle we're in right now?

Yes. Our businesses are cyclical. And our businesses are driven by effectively 2 things. One is demand, and that's real demand that we're seeing right now in COVID times. So you're really using the network to do something. And the other one is really competition. And I think it's a good segue. So I already spoke about the uplink demand needs. But competition, whether it's between PON Solutions from the telcos and hybrid fiber coax or whether it's wireless solutions that are coming over the top. This also drives demand in the network. And so when we see something being lumpy or being in a temporary lull, this is usually due to either a network demand, not being absolutely necessary at that time. So we've overbuilt a little bit. And -- or a little bit less competition. And what I see from the 4 wireless operators that are now coming out is that we're going to see increased demand from these wireless operators. Trying to pick off consumers who can now get 50 or 100 megabit to their homes via wireless. And this will generate an additional build by the fixed line folks to try to get into the home with lower latency and higher data rate services so that they can win at this competition. Really, all of that competition is great for CommScope. In terms of the lumpiness, I think the business will continue to be cyclical. And the duration is dependent upon those 2 things. Is there more demand in the network? Or is there more competition? And we think that both will continue to go on.

Got it. I'm just going to pause. For those on the webcast, if you want to ask a question, there should be a box for you to input a question, I'll see it on my end and I can relay it to the team as well. Morgan, while we're on the topic, I also want to follow-up because we -- one of your industry peers has recently called out some slowing order activity, particularly from its service provider customers. And I know I think you've been pretty open about the telcos slowing down some of the spend and really some of the strength in broadband being driven more by the cable side. But can you talk about whether you've seen any similar trends? And I guess maybe more broadly, the latest on what you're seeing from the telcos in broadband networks.

Yes. So I haven't seen those same trends, but remember that the telco spend and the cable co spend is a very, very large CapEx. And we're not necessarily, depending on which one of our peers are speaking of, we're not necessarily operating in the same area. They spend money on the core, the access layer and the edge, and they typically don't do it the same every year. So money shifts from one place to another. So it's quite possible that this is in the core, which may have a reduction in CapEx and the edge may have an increase in CapEx. So we could see, if we were more biased toward the edge, we could see an upward trend while somebody else is seeing a downward trend. I don't know the specifics of it, but I would reaffirm what we've said in our guidance that the second half of the year is pretty much what we have been saying. And we don't notice a particular down or particular up beyond what our expectations were when we last reiterated guidance.

Got it. Got it. A couple of questions that have come in from the audience. So first, we talked about some of the maybe pressure that one of your peers had highlighted. One of the other things, I guess, that we've heard it somewhat is that among data centers and particularly within hyperscale, a very, very strong first half of the year. And then the industry moving maybe more into a digestion phase, sort of guiding the street towards a little bit more of a slowdown in the back half of the year. So either Morgan or Ben, if you can just speak to what you're seeing on the data center and hyperscale side from your customers?

Yes. That's a good question. I think there's -- we've been -- I think in the past, yes, have seeing big growth in building new data centers, building lots of new data centers, right, just to really keep up with demand. That is still happening for sure. That's -- some of that's still happening. But what we are now seeing is an upgrade cycle, if you will, or a refresh cycle with some of the data centers. Some of these data centers out there are aging, which is maybe not that long a time in the life of the data center. But the technology ages out, they reconfigure for higher density and for higher cooling requirements or whatever they need to do. And the good news about our data center business is that we really benefit from most of those types of cycles. Right, when you upgrade and provide more higher density, that usually requires new higher density fiber solutions. We put a lot of time and investment into building really customized density solutions for these data centers so they can pack as much storage and as much compute into a smaller environment as possible. So I would say that there is -- we benefit from both of those trends, and we continue to see that as a growth space for us.

And I'm going to wrap up with one last one from the audience in the interest of time. Do you have a strategy for addressing Open RAN? And are you selling Open RAN radio units today for use with other vendors' baseband units?

Ben, you want to take that? Or you want me to?

You can take it, and I'll jump in.

Okay. Okay. First of all, we think Open RAN is a great opportunity for the industry and for CommScope. We think it will help drive down the cost per bit per area, which is great for the industry and always drives additional consumer demand. We do produce -- on the indoor domain, we produce O-RAN-compliant radio heads, O-RAN-compliant distributed units and centralized units. So we are moving along that path as well. We do for some radios. We have produced an O-RAN version of various radio heads. The market for this is still quite small at the moment, particularly in the macro layer, which is, I think, what people are thinking about, how do you roll this out for DISH? How do you roll this out for places like [ Rocketon ] or Jio in India. And while certainly, these radio heads we could make, it's more likely that we would make either specialty unit or partner with other folks to put our antenna technology into integrated radios in this case. And that's simply because if that really does go O-RAN, it will commoditize almost instantly. So we're looking for places where it will not be -- be commoditized to do that. But we have done some radios, and we will continue to do that in the future. I'm sure Ben has something to say on it.

Yes. No, I would say on the indoor, that is indoor radios and indoor active coverage, it has been a strength of ours at CommScope. And this is a place where we expect to be able to provide some leadership in. O-RAN is really -- with many players or many other players out there, the big OEMS, they will start from a strength in outdoors trying to move indoors. We are the opposite. We have great strength indoors. And we really are -- our OneCell architecture is really O-RAN native and 5G native fundamental architecture. So we believe we can provide some leadership there. And then in the future, we could adapt that to outdoors.

Great. I think with that, we'll end it there just because we run out of time. So Morgan, Ben, thank you very much for joining us.

Pleasure. Thank you.

Yes. It's been a pleasure. Thanks for that.